Marc Casper: Dan, I think your fellow analysts are throwing tomatoes at your building today. You’re asking 19 questions in that one, but I’ll start at a high level and leave some of this for others. Let me break the pharma — biopharma into what revenue was in Q3 and then a little bit of — some of the underlying dynamics. Actually, the revenue in the quarter was incredibly similar to the prior quarter, right, in terms of how we actually performed. We declined 1%. And looking at that, the long-term outlook here is strong. We talked about that in an earlier question. Effectively, customer caution increased a bit. You’ll see that more pronounced in biotech and pharma, but you see it across the customer set. That’s more of a forward-looking look.
I think the thing that probably is most relevant and why we think about our fourth quarter the way we do, one of the things that we assumed in our previous guidance was that in our bioprocessing business, that orders would stabilize, start to normalize in the third quarter. We did not see that, right? Obviously, what’s the single biggest driver of the same factors in Q4 versus what we talked about really is bioproduction. We didn’t see that normalization of orders. In general, that business operates on a roughly 13-week lead time. So if you don’t see the orders in Q3, you’re not going to see the revenue step-up in Q4. So hopefully that’s helpful in terms of framing. I’m sure I’ll get some of the other ones in future questions.
Operator: Thank you, Dan. Our next question comes from Derik de Bruin from Bank of America. Derik, your line is now open. Please go ahead.
Derik de Bruin: Hi. Thank you, and good morning. Thanks for taking the question. Hey, Marc, you just typically haven’t called out COVID impact to PPD — the biopharma services business in the past. Can you just sort of clarify what that was in ’22 and ’23 overall so we can get the number? And also staying on that segment, Pfizer and Moderna are big customers of yours. They both sort of announced some R&D cuts. How should we sort of think about how that flows through the business? And I guess is there any sort of like vaccine revenues that in that business, were there any sort like take or pays that are sort of in there? So I know it’s a lot on that, but just start there.
Marc Casper: Yeah. So they’re great questions. So let’s talk about clinical research one level above and then I’ll give you some of the answers to the question you have. All right. So we are almost at the two-year anniversary of the acquisition of PPD, which closed in early December of 2021. Business is doing great, right, and it’s been a terrific acquisition. It is a terrific acquisition with a bright future. If you think about what the moment-in-time was in December of 2021, PPD had done a great job of growing its core sort of normal business and played a leading role in supporting the clinical trials for vaccines and therapies, just a phenomenally relevant set of capabilities, which is part of the reason we knew how great the business was and how respected it was in the industry.
Since our ownership, we’ve modeled in that this would be a declining portion of the business. It’s actually been a headwind through all of our ownership on core organic growth, right? So if I think about — so our core organic would actually been higher than if we didn’t include it. But our view was, this business’ end-market growth was really good and we’re just going to grow through it and it was factored into our guidance. Obviously, as customer caution has increased in pharmaceutical and biotech, the rates of growth in our non-COVID business slows. And we wanted to ensure that our investors understood that that was actually quite healthy, but we’re going through the run-off on vaccines and therapies. To give you the magnitude of the number, what is embedded in our 2023 is a $600 million decline in revenue for vaccines and therapies, and it also happens to be $600 million of activity in the year.
So that’s this year, and as opposed to sort of take or pay or those things, clinical trials are different, but you have patients enrolled, you go through it. So that revenue will run off in an orderly fashion over the next couple of years in the outlook that we gave of $300 million of total revenue for all pandemic related. Some of that — most of it is actually that work in clinical research. There’s a little bit of take or pay in pharma services and nominal amount of testing. So hopefully that gives you a good sense of the dynamic there.
Derik de Bruin: Right. So if we just think about underlying growth of the core PPD business, just sort of like, what’s your embedded number for this year, and sort of like the working assumption for next year? Just, as I said, there’s just a lot of variables. I think just some clarity would help.
Marc Casper: Yeah. So obviously, we’ll get into some of that. We don’t even do it by business unit in our guidance. So — but I can give you sort of direction how to think about it. What we have said at the time of the acquisition and what we’ve said consistently is the long-term growth expectation for this business is high-single-digits plus the benefit of synergies. And that hasn’t changed in terms of the long term. Our assumption has been that it would step down from the 20% and then sort of double-digit growth to that, and then actually it will step down below that and bounce back up just on the math of the COVID — the COVID activity run-off over the next year or so. So hopefully, that helps in terms of how to think about modeling it.
Derik de Bruin: Yeah.
Marc Casper: Thanks, Derik.
Derik de Bruin: Then just one more if I can. Thanks.
Operator: Thank you. Our next question comes from Rachel Vatnsdal from J.P. Morgan. Rachel, your line is now open. Please go ahead.
Rachel Vatnsdal: Hey, good morning, and thanks for taking the questions. So appreciate all the color that you’ve given us today on 2024, but for two areas that I wanted to follow up on. First, how do you see China playing out next year? At this point, is growth in the region going to be reasonable in 2024? Are we going to be looking at declines? And now you’ve noted that 2024 is also going to be more of a back-half weighted story given those market dynamics. So could you walk us through the magnitude of the step-up that you’re expecting between the first half and second half? And how much of that is really going to be driven by easier comps in the back half versus an expected rebound in the market?
Marc Casper: So, Rachel, thanks. Let me start with China. And I think it’s really relevant for the community to understand our view on what’s going on in China, right? So first of all, it was great to return to China, which I did in August. And actually came away with — and way more encouraged on the long term. So let me give you a little bit more detail on it. I went to China with two different hats. One is the Chair of the US-China Business Council, where I had the opportunity to interact with senior members of the Chinese government, including the premier. And then I also did my normal thing of being CEO of Thermo Fisher Scientific and had the opportunity to see our colleagues, visit sites and see a lot of customers during that process.
So this is what I came away with from my visit. Economy is definitely challenged, and the conditions are worsening, and we saw that worsening during the quarter. The government is actively working to boost business confidence and create a stronger environment for foreign investment. So when I think about the kind of the macro picture, short-term, definitely a challenge from a macro-economy. I was pleasantly surprised that a real focus on a better environment for foreign companies, which bodes well for the future. When I think about the outlook here, we definitely saw the impact of the declining economy in the results and we would expect that that will continue. And we can’t predict exactly when the market will do. But we know that the comparisons get easier in the second half for China as we lap some of the comparables — or the more challenging comparables.
